The churn formulas
Monthly vs. annual churn
Annual churn is not monthly churn times 12, because each month's churn applies to a smaller base. The correct conversion is 1 - (1 - monthly churn)^12. A 5% monthly churn rate is about 46% a year, not 60%.
| Monthly churn | Annual churn | Average lifetime |
|---|---|---|
| 1% | 11.4% | 100 months |
| 2% | 21.5% | 50 months |
| 3% | 30.6% | 33 months |
| 5% | 46.0% | 20 months |
| 8% | 63.2% | 12.5 months |
| 10% | 71.8% | 10 months |
Customer churn vs. revenue churn
They can tell different stories. If small customers leave and large ones stay, customer churn looks bad while revenue churn looks fine - and the reverse is a serious warning. Track both. Net revenue retention above 100% means existing customers grow faster through upgrades than you lose to cancellations, which is the strongest position a subscription business can be in.
What counts as good churn?
Churn varies enormously by customer type. Consumer subscriptions and small-business software commonly see several percent per month, while software sold to large companies on annual contracts often has single-digit annual churn. Compare yourself with businesses selling to similar customers at similar prices, and focus on the trend: falling churn is worth more than any benchmark.
How to reduce churn
- Shorten time to value. Customers who get a clear result in their first week stay longer.
- Fix involuntary churn. Failed card payments can be a meaningful share of cancellations; card updaters and retry emails recover many of them.
- Offer pause and downgrade options before cancellation.
- Ask why people leave and fix the top reason each quarter.
Use the lifetime from this tool in the LTV calculator, and compare LTV with your CAC.
Frequently asked questions
How do I convert monthly churn to annual churn?
Annual churn = 1 - (1 - monthly churn)^12. For 3% monthly churn: 1 - 0.97^12 = 30.6%.
Should new customers be included in the churn calculation?
Not in the denominator. Use customers at the start of the period, so customers who join and leave within the same month do not distort the rate. Track early churn of new customers separately.
What is net revenue retention?
The share of last period's recurring revenue you still have from the same customers, after cancellations, downgrades and upgrades. Above 100% means existing customers are growing revenue on their own.